Countervailing Powers: On John Kenneth Galbraith
In a 1930 essay titled “Economic Possibilities for our Grandchildren,” John Maynard Keynes ridiculed economists for having a high opinion of themselves and their work. As the Great Depression engulfed the world, Keynes looked back at historic rates of economic growth, arguing that the real problem people would face in the future was not poverty but the moral quandary of how to live in a society of such abundance and wealth that work would cease to be necessary. The “economic problem,” as he put it, was technical, unimportant in the larger scheme of things. “If economists,” he wrote, “could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid!” John Kenneth Galbraith—the Harvard-based economist whose books shaped the public conversation on economic matters for a generation in mid-twentieth-century America—would have agreed.
Today, given the rise of mathematical methods and computer modeling, economics is if anything even more labyrinthine, esoteric and inaccessible to the layman than it was in the days of Keynes and Galbraith. It is also more intellectually and politically ascendant than it was in the 1930s. Its methods now dominate much of the social sciences, having made inroads in law and political science. Its central theme of the superiority of free markets is the gospel of political life. This makes the publication of the Library of America edition of four of Galbraith’s best-known books—American Capitalism; The Great Crash, 1929; The Affluent Society and The New Industrial State—a cause for celebration. (The volume is edited by Galbraith’s son James, also an economist.) Galbraith delighted in puncturing the self-importance of his profession. He was a satirist of economics almost as much as a practitioner of it. He took generally accepted ideas about the economy and turned them upside down. Instead of atomistic individuals and firms, he saw behemoth corporations; instead of the free market, a quasi-planned economy. Other economists believed that consumers were rational, calculating actors, whose demands and tastes were deserving of the utmost deference. Galbraith saw people who were easily manipulated by savvy corporations and slick advertising campaigns, who had no real idea of what they wanted, or why. In many ways, our economic world is quite different from the one Galbraith described at mid-century. But at a time when free-market orthodoxy seems more baroque, smug and dominant than ever, despite the recession caused by the collapse of the real estate bubble, his gleeful skewering of the “conventional wisdom” (a phrase he famously coined) remains a welcome corrective.
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John Kenneth Galbraith was born in 1908, the third child of a farm family in the small Canadian town of Iona Station. He became an economist almost by accident. Shortly before his graduation from Ontario Agricultural College (which he described in later life as “probably the worst college in the English-speaking world”), he stumbled upon an advertisement for a graduate fellowship in agricultural economics at the University of California, Berkeley. He applied and was accepted, and after completing his studies he managed to secure a nontenure-track position at Harvard.
It took some time for Galbraith to become a full professor, but even then he never retreated into academic life. To learn of the sheer variety of his activities—detailed in the chronology in the Library of America volume—is exhausting. He was prolific, writing four dozen books—among them three novels—and more than 1,100 articles. Before he earned tenure, he did a stint at the Office of Price Administration during World War II, creating the system of price controls that prevented inflation during the wartime boom. In the 1940s he was a writer for a new magazine called Fortune, where his articles helped spread popular interpretations of Keynesianism. He participated in the United States Postwar Strategic Bombing Survey, which found that the supposedly accurate air-bombing of Europe had in fact failed to destroy the munitions plants it had targeted. He was closely tied to the Democratic Party of the postwar years, advising Adlai Stevenson and serving as the American ambassador to India under John F. Kennedy, although he ultimately became an outspoken opponent of the war in Vietnam (and steadily moved to the left of the Democratic Party). In the ’70s he was pilloried by the conservative movement: the Heritage Foundation held him up as an example of all that was wrong with liberalism, and Milton Friedman’s PBS series Free to Choose was created as a conservative alternative to a series Galbraith produced for the BBC called The Age of Uncertainty.
When Galbraith was a young man, the field of economics was more diverse and more openly ideological than it is today. It was far less dominated by mathematical techniques (which Galbraith never used), and political debates were a regular part of economics courses. (For example, the conservative Harvard economist Thomas Nixon Carver used to open the floor to socialist speakers for the first half of his spring semester class, and then spend the second half giving his rebuttal to their arguments.) Thorstein Veblen, Karl Marx and Keynes were among Galbraith’s early intellectual influences. For Veblen, consumption was irrational and atavistic, a display of status more than the satisfaction of genuine needs—a skeptical view of consumerism that Galbraith would follow throughout his work. Even though Galbraith rejected Marxism, finding it as doctrinaire as conservative economics, he admitted that Marx was right about enough—the existence of social classes, the centrality of material interests, the recurrence of economic depressions, the concentration of industry—that any thinking person who was not a Marxist had to occasionally wonder: “Might he not be right on other things—including the prospect for capitalism itself?” In the 1930s, as a young professor, Galbraith became persuaded by Keynes’s arguments against laissez-faire and in favor of an expansive role for government. In the postwar years, American Keynesianism became inextricably bound up with military spending. Galbraith would put forward another vision of Keynes, one that stressed a vision of the common good.
Despite the intellectual richness of economics in the early years of the twentieth century, most of Galbraith’s academic elders in his formative years still believed the old truths of Adam Smith, David Ricardo and Alfred Marshall. The economy was composed of millions of atomistic units—individuals and small firms—that interacted in a marketplace in which prices were set by competition. This perfect system ran best without interference from the state. Competition would produce the best rewards for everyone. Even the Social Darwinist certitude that “the millionaires are the product of natural selection” (to quote one of the credo’s chief boosters, the Yale sociologist William Graham Sumner) remained a respected faith in the academy into the early 1930s.
For many in the broader society, this unthinking faith in the virtues of the market was shattered by the Great Depression. But the men who had devoted their lives to expounding the market’s glories—including quite a few on the Harvard economics faculty—did not retreat. Instead, they spent their time denouncing the New Deal, Roosevelt and the “alien” intellectual influences that had seized control of the state. Throughout his career, Galbraith would write with bitter wit about people who clung to their sentimental philosophies about how the world ought to operate, long after reality should have shaken them free. In The Great Crash, 1929, he would quote Mark Twain, who had provided the Wall Street Journal’s “thought of the day” for September 11 of that year: “Don’t part with your illusions; when they are gone you may still exist, but you have ceased to live.” Galbraith sought to provide a vision of the modern economic world without illusions.
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The four books collected in the Library of America volume take as their central target the idea that the economy is composed of rational, calculating individuals, whose personal preferences shape the market and guide it to an optimal outcome for everyone. It is hard to imagine four such books being written today: they were bestselling, lucid, fiercely confident works that argued in various ways against the idea that the American economy operates as a frictionless, benevolent free market.
American Capitalism, published in 1952, begins by comparing the economy to a bee. “It is told,” Galbraith wrote, “that such are the aerodynamics and wing-loading of the bumblebee that, in principle, it cannot fly.” And yet it did, in blissful ignorance of the laws of physics. So, too, the American economy of the ’50s seemed to be thriving “in defiance of the rules” of economic life as laid down by Smith and Ricardo. A massive government, powerful labor unions and gigantic corporations had replaced the competitive economy of yesteryear. The result, though, was not economic collapse but unprecedented prosperity. Skeptics of bigness who urged a return to the small enterprises of the nineteenth century were nostalgic and misguided. The way to respond to concentrated economic power was not by trying to break it up, as had always been the American tendency. Instead of busting the trusts, the way to curb their power was to create institutions—strong labor unions, consumer associations, farmers’ groups— that could match their economic might. Indeed, the federal government at times took on the role of a “countervailing power,” as when it intervened in the labor market to establish a minimum wage.
The Great Crash, 1929, published in 1955, is perhaps the funniest book ever written about economic collapse. It gains its force by telling the story of the run-up to the stock market crash, and showing how businessmen, journalists, political leaders and economists all helped prop up and sustain the widespread faith in Wall Street as an easy source of vast wealth. This made the bubble of the 1920s possible and the crash that followed virtually inevitable. Galbraith scoured newspapers, political pronouncements, the writings of economists and the prospectuses of investment companies for examples of brash and bombastic statements about the stock market boom of the late ’20s. In June 1929, Bernard Baruch told a magazine that “the economic condition of the world seems on the verge of a great forward movement.” On October 15, 1929, Yale economist Irving Fisher famously pronounced, “Stock prices have reached what looks like a permanently high plateau…. I expect to see the stock market a good deal higher than it is today within a few months.”
Even after the stock market descent began on Thursday, October 24, the political and business communities rushed to reassure the public. President Herbert Hoover told the nation, “The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis.” In the papers on Monday, October 28, brokerages bought advertisements filled with soothing words: “We believe that the investor who purchases securities at this time with the discrimination that is always a condition of prudent investing, may do so with utmost confidence.” It was the day, Galbraith notes, “the real disaster began.”
The central theme of The Great Crash is the impotence of people with power when in the grip of ideas that leave them no way of confronting reality. They endorse and protect a consensus that conceals what is objectively true. One of the most caustic passages in the book describes the “no-business meetings” held by Hoover in the wake of the crash, which assembled prestigious businessmen at the White House, to great fanfare from the press. No proposals emerged from Hoover’s meetings. No action was taken. No one intended that anything should be accomplished. And yet by gathering men of wealth and undeniable social importance, Hoover intended to give the impression that something of importance was being done while doing nothing at all. They were, Galbraith wrote, a “practical expression of laissez faire.”